Time to take risks! CEO overconfidence in their propensity to undertake M&As and the role of economic business cycles
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2023-09-08
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en
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This research aims to improve the understanding of the impact of overconfidence on the risk-taking propensity of CEOs by assessing the propensity to undertake mergers and acquisitions (M&A). The study examines a sample of 258 observations from AEX-listed firms from 2005 to 2017. Furthermore, the research proposes that this relationship depends on the different phases of the business cycle, namely expansionary and recessionary periods. The theoretical framework guiding this research draws upon four behavioural perspectives: the hubris hypothesis, the mechanisms of overconfidence, the upper echelons theory, and the process perspective. To analyze the data, this study employs cross-sectional
binomial logistic regression models. The main finding of the research suggests that higher levels of CEO overconfidence are positively related to risk-taking, reflected in the likelihood to undertake M&A. However, this relationship depends on the phases of the business cycle. During expansionary phases, the positive relationship is reinforced, while during a recessionary phase, the relation becomes negative. The findings offer valuable insights for both board directors and researchers seeking to understand the complex interplay between overconfidence, risk-taking behaviour, and macroeconomic cycles.
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Faculteit der Managementwetenschappen